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S&P says Japan needs to raise tax revenue with sales tax hike

[TOKYO] Japan needs to use a planned increase in its sales tax to boost government revenue and lower its outstanding debt burden, ratings agency Standard & Poor's said on Friday.

Exempting some food items from a tax increase scheduled in 2017 could prove a positive step by making it easier for voters to accept higher taxes, Kim Eng Tan, S&P's Asia-Pacific senior director of sovereign ratings, said in an interview.

However, tax exemptions will pose an administrative cost to companies and the government as they have to decided which items to exempt and set up a system to deal with multiple tax rates, Mr Tan said.

"The important thing is the sales tax must bring in revenue to bring down debt level," Mr Tan said.

"Exempting some items from the sales tax hike is not unusual, but any time you exempt something, you make it more expensive to enforce the system."

S&P last month cut its rating on Japan from AA- to A+, which is four notches below its top rating of AAA, because it doubts the government's will reverse economic deterioration. The agency raised its outlook to stable from negative.